[mgnyc]

Regulation Wiley 2012 Module 36 question 25:

The question is to calculate recognized gain on sale of personal residence after the exclusion – no problem.

Phil Yaegar adds that the unrecognized gain via the exclusion will decrease the basis in a new personal residence purchased. Is this right? It would significantly decrease the value of further exclusions if subsequent purchases have their basis reduced.

So if I use 250,000 of exclusion on house A, then buy house B for 200,000, house B’s basis is 0.

I understand that this is the case in other reinvestment activities but it doesn’t smell right for personal home.

Aud 73, 79
Reg 70, 60, 67, 76
Far 70, 66, 72, 87
Bec 77

[Anonymous]

I do not believe that the exclusion has any effect on basis. If I understand correctly, the basis of a personal residence will always be the purchase price plus capital improvements, etc. You get to exclude $250K for a single person, $500K if filing jointly. The gain is not deferred (as in a like-kind exchange, involuntary conversion, etc), it is simply excluded forever. If it were a deferred gain, it would have an effect on the basis of the next house you buy, but that is not the case here. Hope this helps.

[kmwgrace]

To clarify, the $250/$500k exclusion is for tax purposes, not basis.

~ Kate... MTX!
CPA exam on hold while I homeschool my 6 year old!

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